Yahoo CEO ‘error’ is very serious, experts say

Pressure builds on Thompson over inaccuracy in record

SAN FRANCISCO (MarketWatch) — Yahoo Inc. called the discrepancy in Scott Thompson’s stated credentials an “inadvertent error,” but some corporate-governance experts said Friday the mistake is so serious that the new chief executive may not survive the controversy.

Yahoo’s
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board also blundered, one legal expert says, in its response to dissident investor Daniel Loeb’s revelation of the issue, and argued that the directors have no choice but to ask Thompson to step down — or fire him.

Yodel Anecdotal/Yahoo

CEO Scott Thompson

“If he lied about anything, that’s a problem,” said Santa Clara University law professor Stephen Diamond in a phone interview. “It’s the lack of honesty that is likely to sink him as CEO.”

He added: “I don’t see how he can survive this. ... If the board were to ask me for advice, I’d tell them to ask Mr. Thompson for his resignation. If he doesn’t give it to you, I’d fire him.”

Loeb — the chief executive of Third Point, the New York-based investment group that is waging a proxy war against Yahoo’s board — wrote a letter Thursday charging that Thompson did not earn a computer-science degree from Stonehill College of Easton, Mass., as the company’s own website and a draft proxy statement said.

The board may have erred in its reaction, according to Diamond. “That’s potentially another misstatement,” he said. “By putting out that statement before they began an investigation, [Yahoo] is compounding the problem because it potentially misleads shareholders into thinking that there isn’t a serious problem here.”

There certainly is a serious problem, Diamond continued, because Thompson undoubtedly had to sign regulatory documents that contained the mistake.

“I don’t know of an explanation that enables him to say that this was an inadvertent error,” he added. “Because he signed these documents. ... if he signed it without reading it, that’s gross negligence. That could be violation of his fiduciary duty to Yahoo.”

Yahoo contends that the error “in no way alters the fact that Mr. Thompson is a highly qualified executive with a successful track record leading large consumer-technology companies.”

Thompson had been a well-regarded executive at eBay Inc.
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where he served as president of the PayPal business. His biography on eBay’s site also had said incorrectly that he had a computer-science degree, though that company’s filings with the SEC accurately noted Thompson’s background.

Whether or not the executive had a computer-science degree “is not the material problem,” Diamond said, pointing out that prominent industry figures such as Bill Gates or Mark Zuckerberg do not have such credentials. “It’s not a question of whether he had a degree. … Lying is a separate problem from being undereducated.”

Kara Swisher on Yahoo’s ‘error'

Vivek Wadhwa, a fellow at Stanford University’s Rock Center for Corporate Governance, underscored this, saying: “You can’t lie about anything if you’re a public company. … If one of [Thompson’s] employees had lied like this, he or she would have been fired in a heartbeat.”

Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware also said that “it’s hard for a board to rely on someone going forward who has made that kind of misstatement.”

This controversy erupted at a very difficult time for Yahoo, Diamond observed. Aside from the proxy war with Third Point, the company is seeking to map out a way forward after falling behind stronger players, led by Google Inc.
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Investors also are anxious about what the board plans to do with Yahoo’s prized assets in Asia.

“The problem is Yahoo in the middle of a proxy battle for the future of its business,” he said. The board’s reaction “suggests there’s disarray inside the organization, and that’s a problem too.”

Corporate-governance expert Nell Minow of GMI Ratings said that “in the past, some companies when confronted with this situation have replaced the CEO. I would not be surprised if that happens.”

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